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What's in the Cards for U.S. Bancorp (USB) in Q2 Earnings?

U.S. BancorpUSB is scheduled to report second-quarter 2017 results on Jul 19, before the opening bell. While revenues and earnings are expected to grow year over year, we can’t conclusively predict an earnings beat.

Before we discuss why an earnings beat might not be in store and what could influence the results, let’s take a look at how the company performed in the last quarter.

The company’s first-quarter 2017 earnings surpassed the Zacks Consensus Estimate, aided by growth in net interest income and non-interest income. Further, the quarter recorded a rise in loan and deposit balances. However, on the down side, the quarter witnessed elevated expenses and higher provisions.

Notably, U.S. Bancorp delivered positive earnings surprises in three of the four trailing quarters, with an average beat of 1.55%.

U.S. Bancorp Price and EPS Surprise

Regarding the stock’s performance, shares of the company gained around 1% for the three-month period (ended Jun 30, 2017), underperforming growth of 4.0% recorded by Zacks categorized Banks – Major Regional industry.

Will the upcoming earnings release give a boost to U.S. Bancorp’s stock? This depends largely on whether the firm is able to post a beat in the second quarter. However, our quantitative model doesn’t conclusively point toward an earnings beat this time. Here’s why:

U.S. Bancorp doesn’t have the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing its chances of an earnings beat. It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Zacks ESP: The Earnings ESP for U.S. Bancorp is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 84 cents. This is a major indicator of a likely positive earnings surprise for the company. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: U.S. Bancorp’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

Factors to Influence Q2 Results

Expenses to Trend Higher: Expenses might trend upward in the upcoming release due to digitization and investments in technology. Moreover, costs are expected to be seasonally higher in the to-be-reported quarter.

Pressure on Net Interest Margin to Ease Slightly: Though the lingering low-rate environment has taken a toll on the bank’s margins for the past several years, the Fed’s recent rate hike for the fourth time, since the financial crisis, and its commitment to raise rates faster (one more time) this year, based on a convincing pace of economic growth, will likely help banks get rid of shrinking margins further. However, lower treasury yields during the quarter might curb margin improvement.

Top-line Growth: It is anticipated that an improving economy will spur consumer activity, which will help both payments businesses and consumer lending businesses. An improved economic backdrop should also lead to a rise in business spending on development and capital investments. Further, mortgage revenue is projected to improve sequentially.

Loan Growth: Per the Federal Reserve’s latest data, loans grew on a sequential basis during the second quarter. Both commercial real estate loans and commercial and industrial loans (C&I) are anticipated to increase, while consumer loans might fall. Therefore, interest income for banks is projected to improve marginally.

Management expects commercial loan growth to improve on a sequential basis. Credit card, mortgage and auto loan growth is likely to be stronger due to seasonality.

Activities of U.S. Bancorp during the quarter to be reported were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined 1.2% to 84 cents over the last seven days.

Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

Huntington Bancshares Incorporated HBAN has an Earnings ESP of +4.35% and a Zacks Rank #3. It is slated to report second-quarter results on Jul 21.

Fifth Third Bancorp FITB has an earnings ESP of +2.38% and a Zacks Rank #3. It is slated to report second-quarter results on Jul 21.

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